Royalty law on Romania radar

25 May 2015, News Wires – Romania’s government will send a draft law on royalty taxes for the oil and gas sector to parliament in September, Deputy Finance Minister Dan Manolescu was reported as saying on Monday.

The new tax system will likely include differentiated royalties for onshore and offshore extraction and will apply only to new contracts.

It will also include a levy on profit from upstream activities, in addition to the global flat 16% tax on profit, and a system of deductions based on investment, Manolescu told an energy seminar, according to Reuters.

Romania is one of the European Union’s poorest states, but it has a wide range of energy resources, including gas and coal, and some analysts have said relatively low royalties prevent it from making the most of what it has.

Companies currently pay royalties ranging from 3.5% to 13.5% of production for oil and gas, depending on the amount extracted. They also pay a tax on special buildings such as oil wells and a tax of up to 60% on income from higher prices due to ongoing energy market deregulation. Both levies are temporary.

“We aim that revenues collected under the new system are at least as high as current ones,” Manolescu said.

“The draft will be sent to parliament in September, when parliament reconvenes from the summer holiday.”

He said the level of the additional tax on profit from upstream activities had not yet been decided, nor the amount of deductions.

Romania has left royalties unchanged since 2004, a condition it agreed to under the 2004 privatisation of oil and gas group Petrom, now owned by Austria’s OMV.

It planned to introduce the new system last year, but a November presidential election delayed the debate.

The government has said any new system would have to ensure it does not stifle investment.

“Offhore wells are multi-decade projects,” said John Knapp, general director of the Romanian unit of ExxonMobil , which jointly owns with Petrom the first deep-water exploration well in the Black Sea in Romanian waters.

“It is a high-cost environment; we are looking at several billion euros on investment. Investors require predictability and a competitive environment.”

Meanwhile, a plan to tender 36 new concessions for onshore and offshore hydrocarbon licences would be held after the royalties law is approved, said Gheorghe Dutu, the head of the National Agency for Mineral Resources.